One of the stronger arguments at the start of the recession – that seemed almost plausible at the time – was that youth-oriented retailers would escape the worst problems because their audience was insulated from the skirmish.
This worked out for some time but the downturn has not simply been a skirmish. It has been upgraded to a long-term depression and the kids have been fully engulfed. They are now just as skint as their parents.
You know the roll call of growth operators over recent years – H&M, Topshop, Primark and in the US there has been Forever21 that is now opening units in the UK. They have enjoyed growth even when most other retailers were feeling the pinch from disposable incomes dropping.
The argument was that the younger crowd were not encumbered by mortgages, they hadn’t built up lots of debt, and they simply had to have the latest fashion items (while their parents were concentrating more on putting food on the table).
Well this fantasy has now unhappily ended. H&M’s sales are now flat and margins are eroding, Primark has admitted operating margins are under pressure, and Topshop owner Arcadia group is rationalising its store estate.
In addition, River Island has suffered a fall in sales, and profits have dipped dramatically at the Next-owned Lipsy chain. There is now a realisation that the youth market (16-to-22 year-olds) are not immune from the troubles. Unemployment in the group is rising, University tuition fees are increasing, and graduates are not finding jobs.
Perversely, the solution to this from some of the big fashion retailers is to keep their aggressive expansion plans intact. H&M and Primark are keeping their foot hard on the store-opening peddle and new UK entrant Forever21 has suggested it could open 100’s of UK stores.
This is clearly going to end badly and the surest sign that a car crash is on the way is the appearance late on the scene of a gung-ho US-based retailer that simply knows best.